California Earned Income Tax Credit (CalEITC)

What is it? The cash-back California Earned Income Tax Credit (CalEITC) is designed to put money in the pockets of low-income working people. You can use the money for anything…clothing, food, school supplies, electric bills, etc. Starting with the 2017 tax year, families earning wages or self-employment income up to $22,300 may qualify for CalEITC.

How do I claim the credit? You claim the credit by preparing and filing a California tax return. You can do it yourself or get free help.

What if I already filed my state return and didn’t claim the credit? If you think you may qualify for CalEITC, you may amend your return. You can do it yourself or get free help.

Get free help to prepare (or amend) and file your tax return. To find free help at a location near you, check CalEITC4Me.org beginning in late January and running through Tax Day, April 17, 2018.

How does it work? Once you file your tax return:

If you do not owe taxes, CalEITC gives you a refund.

If you owe taxes, CalEITC reduces the amount of taxes you owe and if there’s still a credit left, gives you a refund.

For the 2017 tax year, this credit is available to California households with adjusted gross incomes of up to $15,008 if there are no qualifying children, up to $22,322 if there is one qualifying child, up to $22,309 if there are two qualifying children, and up to $22,302 if there are three or more qualifying children.

You qualify for Cal EITC for the 2017 tax year if:

You have wages, self-employment income and adjusted gross income within certain limits, AND

You, your spouse, and any qualifying children each have a Social Security Number issued by the Social Security Administration that is valid for employment, AND

You do not use the “married/RDP filing separately” filing status, AND

You lived in California for more than half the tax year.

Qualification

Description

Earned Income

Eligible sources of earned income from:

W-2 wages.

Self-employment

Salaries, tips.

Other employee compensation subject to California withholding.

Note: The 2017 tax year is the first time self-employment income can be used to qualify for CalEITC.

Maximum Income Limit

Both your adjusted gross income and earned income (defined above) may be up to:

Relationship - Is the taxpayer’s child, stepchild (whether by blood or adoption), foster child, sibling or stepsibling, or a descendant of any of them.

Residence - Had the same principal residence as the taxpayer in California for more than half the tax year. Certain exceptions apply.

Age - Child must be younger than the taxpayer and either a) under the age of 19 at the end of the tax year, or b) under the age of 24 if a full-time student for at least five months of the year. A permanently and totally disabled child may be included at any age.

The child only qualifies for one return. If the child can be claimed by more than one taxpayer, the child’s qualification goes to:

The parent.

If more than 1 taxpayer is the child’s parent, the parent with whom the child lived for the longest time during the year, or if the time was equal, the parent with the highest adjusted gross income (AGI).

If no eligible parent claims the child, the individual claiming the child, if the individual's AGI exceeds the AGI of any parent eligible to claim the child.

If no taxpayer is the child’s parent, the taxpayer with the highest AGI.

Residency

Your principal residence must be in California for more than half the tax year.

Age

If you do not have a qualifying child, you (or your spouse if you file a joint return) must be between 25 and 65 years old at the end of the tax year.

For the 2016 tax year, this credit is available to California households with adjusted gross incomes of up to $6,717 if there are no qualifying children, up to $10,087 if there is one qualifying child, or up to $14,161 if there are two or more qualifying children.

You qualify for CalEITC for the 2016 tax year if:

You have wages and adjusted gross income within certain limits, AND

You, your spouse, and any qualifying children each have a social security number issued by the Social Security Administration that is valid for employment, AND

You do not use the “married/RDP filing separately” filing status, AND

You lived in California for more than half the tax year.

Qualification

Description

Earned Income

Eligible sources of earned income from:

W-2 wages.

Salaries, tips.

Other employee compensation subject to California withholding.

Note: For the 2016 tax year, earned income does not include income from self-employment.

Maximum Income Limit

Both your adjusted gross income and earned income (defined above) may be up to:

Relationship - Is the taxpayer’s child, stepchild (whether by blood or adoption), foster child, sibling or stepsibling, or a descendant of any of them.

Residence - Had the same principal residence as the taxpayer in California for more than half the tax year. Certain exceptions apply.

Age - Child must be younger than the taxpayer and either a) under the age of 19 at the end of the tax year, or b) under the age of 24 if a full-time student for at least five months of the year. A permanently and totally disabled child may be included at any age.

The child only qualifies for one return. If the child can be claimed by more than one taxpayer, the child’s qualification goes to:

The parent.

If more than 1 taxpayer is the child’s parent, the parent with whom the child lived for the longest time during the year, or if the time was equal, the parent with the highest adjusted gross income (AGI).

If no eligible parent claims the child, the individual claiming the child, if the individual's AGI exceeds the AGI of any parent eligible to claim the child.

If no taxpayer is the child’s parent, the taxpayer with the highest AGI.

Residency

Your principal residence must be in California for more than half the tax year.

Age

If you do not have a qualifying child, you (or your spouse if you file a joint return) must be between 25 and 65 years old at the end of the tax year.

For the 2015 tax year, this credit is available to California households with adjusted gross incomes of up to $6,579 if there are no qualifying children, up to $9,879 if there is one qualifying child, or up to $13,869 if there are two or more qualifying children.

You qualify for CalEITC for the 2015 tax year if:

You have wages and adjusted gross income within certain limits, AND

You, your spouse, and any qualifying children each have a social security number issued by the Social Security Administration that is valid for employment, AND

You do not use the “married/RDP filing separately” filing status, AND

You lived in California for more than half the tax year.

Qualification

Description

Earned Income

Eligible sources of earned income from:

W-2 wages.

Salaries, tips.

Other employee compensation subject to California withholding.

Note: For the 2015 tax year, earned income does not include income from self-employment.

Maximum Income Limit

Both your adjusted gross income and earned income (defined above) may be up to:

Relationship - Is the taxpayer’s child, stepchild (whether by blood or adoption), foster child, sibling or stepsibling, or a descendant of any of them.

Residence - Had the same principal residence as the taxpayer in California for more than half the tax year. Certain exceptions apply.

Age - Child must be younger than the taxpayer and either a) under the age of 19 at the end of the tax year, or b) under the age of 24 if a full-time student for at least five months of the year. A permanently and totally disabled child may be included at any age.

The child only qualifies for one return. If the child can be claimed by more than one taxpayer, the child’s qualification goes to:

The parent.

If more than 1 taxpayer is the child’s parent, the parent with whom the child lived for the longest time during the year, or if the time was equal, the parent with the highest adjusted gross income (AGI).

If no eligible parent claims the child, the individual claiming the child, if the individual's AGI exceeds the AGI of any parent eligible to claim the child.

If no taxpayer is the child’s parent, the taxpayer with the highest AGI.

Residency

Your principal residence must be in California for more than half the tax year.

Age

If you do not have a qualifying child, you (or your spouse if you file a joint return) must be between 25 and 65 years old at the end of the tax year.

We created five notices to help administer the new CalEITC. All CalEITC notices are tax year specific. If you receive one of these notices, please read it carefully as it will contain specific information to assist you in responding.

The following is a brief description of each notice:

Notice

Reason you received it

FTB 4502, Additional Documentation Required - Refund Pending

We send this notice when we determine we do not have enough information to approve the claimed CalEITC prior to processing the tax return and issuing a refund. This notice provides specific instructions on the type(s) of supporting documentation a taxpayer must submit to validate the claimed CalEITC.

FTB may ask for the following, so taxpayers should retain these documents and be prepared to share them with FTB:

If the taxpayer has claimed qualifying children, FTB more than likely will ask for documentation regarding these individuals as well. This way, FTB can validate the entire claim.

If we do not receive the required supporting documentation within 30 days of the notice date, we will not issue a refund in the amount of the claimed CalEITC, but rather will send FTB 5818, Notice of Tax Return Change to the taxpayer advising them of the adjustment.

If we receive the required supporting documentation to substantiate the claim, we will issue the refund within eight weeks of receiving the documentation.

If we receive the required supporting documentation and the information does not substantiate the claim, we will not issue the refund and send FTB 5818, Notice of Tax Return Change to the taxpayer advising them of the adjustment.

If we receive the required supporting documentation and the information only substantiate part of the claim, we will issue a refund with an adjustment code and FTB 1020 insert to the taxpayer advising them of the adjustment.

We send this notice when a taxpayer submits the required supporting documentation to substantiate their claimed CalEITC and we accept the documentation. This notice serves as confirmation we accepted the claimed CalEITC for the tax year on the notice.

This notice is only sent after a FTB 4514, Additional Documentation Required - Refund Issued or FTB 5818 Notice of Tax Return Change has been sent to a taxpayer.

FTB 4514, Additional Documentation Required - Refund Issued

We send this notice when we determine we do not have enough information to confirm the taxpayer qualified for the claimed CalEITC and we already processed the tax return and issued a refund.

This notice provides specific instructions on the type(s) of supporting documentation the taxpayer must submit to validate the claimed CalEITC.

If we do not receive the required supporting documentation within 30 days of the notice date, or the provided documentation does not substantiate the claimed CalEITC, we will send FTB 4515, Earned Income Tax Credit – Adjustment Made to the taxpayer advising them of the adjustment.

We send this notice when we receive insufficient documentation or do not receive a response after sending FTB 4514, Additional Documentation Required - Refund Issued. This notice indicates we adjusted the claimed CalEITC and provides the specific reason(s) for the adjustment.

In addition, the notice provides the taxpayer(s) with options should they disagree with the decision to adjust their Cal EITC.

FTB 4516, Earned Income Tax Credit Denial

We send this notice when:

A taxpayer files a Formal Claim for Refund that we denied. We include information on how to file an appeal with the Office of Tax Appeals (OTA).

We deny the CalEITC with a balance due. We include how to pay instructions and how to file a Formal Claim for Refund.

The federal EITC is a refundable federal credit that can reduce the federal tax you owe or result in a refund to you. To find out if you are eligible to claim the federal EITC on your federal tax return, you can:

Paid preparers must meet due diligence requirements when they determine a taxpayer's eligibility for, and the amount of, the California Earned Income Tax Credit (CalEITC). Generally, if a preparer prepares Cal EITC claims, a preparer must ask all the questions required on FTB 3596, Paid Preparers California Earned Income Tax Credit Checklist, as well as, ask additional questions when the information the client gives seems incorrect, inconsistent, or incomplete.

Preparers must complete and submit the FTB 3596 for all paper and electronic tax returns and all other CalEITC claims. The form is required for all Cal EITC claims with a qualifying child and claims with no qualifying child. Also, preparers must keep a copy of the completed FTB 3596 and the worksheet showing the CalEITC computation contained in the instructions of FTB 3514, California Earned Income Tax Credit.

If paid preparers fail to comply with due diligence requirements, the Franchise Tax Board may assess a $500 penalty for each failure.